HEWSON'S VIEW | The real challenges are to come to claim success

NEVER ASSUME: John Hewson reminds the Australian government that coronavirus is unpredictable.
NEVER ASSUME: John Hewson reminds the Australian government that coronavirus is unpredictable.

Considerable credit has been given to our political leaders for the way they didn't let ideology constrain their economic policy responses to the COVID-19 pandemic.

This was particularly important for the Scott Morrison government that had to move so quickly and decisively from its undelivered boast that their budget was "Back in Black" to a deficit of some $200 billion, and many deficits to come in future years, in an attempt to cushion our economy from the most significant economic and social collapse since the Great Depression.

Despite the important gaps and inequities in what they delivered, and many doubts about just how fast and effectively they will be able to disengage from some of the assistance, and the still considerable uncertainty about the likely shape of our economy and social systems to which we will finally exit, it is very clear that they have enjoyed significantly improved trust from the community - clearly much more than before the pandemic, coming out of the bush fire season, and in their handling of several other issues.

This has certainly been reflected in the polls, both for Morrison and, to a lesser extent, the government, and we do stand out internationally, along with other island counties such as New Zealand and Taiwan that were also able to close their international borders, for the effectiveness in managing the virus.

However, shouldn't we be concerned, as necessary as most of it was, about the ease with which the Morrison government made the transition from small to big government, and whether they understand the magnitude of the longer-term consequences of this shift and the task of unwinding such an attitude and level of government engagement?

In a crude way, the government would have us believe that we will be able to grow our way out of the longer-term consequences.

They assume, and that's all it is, that as they reduce government support, not only will businesses bounce back, invest, and re-employ, and consumers spend, but they will be able to do this at an above trend pace, such that the budget will improve dramatically, and the eye-watering explosion in our national debt will be easily serviced and reduced.

Surely this assumption ignores some significant and challenging realities, or makes some pretty heroic further assumptions about how they can be managed?

The virus may not, and probably won't, perform as hoped.

It seems that the global situation will get much worse before it improves, and we face the reality of a series of outbreaks/clusters, with mixed but constraining responses.

Even with a vaccine widely deployed across Australia, we are most unlikely to be able to open our international borders for most of this year, at best.

This, in turn, will ensure that two significant industries, both as employers and exporters - international tourism and universities - will be flat for many years to come, and immigration (including many working and other shorter-term, visa classes) a major determinant of our post-WWII growth, will also remain very subdued.

There have also been many significant shifts in behaviour, across the broad Australian community - individuals and households, businesses, governments and institutions - in response to the virus - in the way we work, travel, study, spend, save, eat, and entertain - some of which will become more or less permanent, with many significant consequences for the nature and pace of possible economic growth.

An important shift has been driven by direct government support to individuals and businesses. Experience suggests that government might offer a "temporary benefit" that is initially accepted as such, only soon to be thought of as a right and difficult to reverse.

For example, given that the government has admitted the likelihood that unemployment and underemployment will stick above pre-COVID levels for at least four years, worker assistance - some JobKeeper and certainly JobSeeker - will need to be sustained longer than previously hoped.

The case for a significant, permanent increase in JobSeeker is undeniable, now compounded by the experience of the much higher rate initially paid in response to the pandemic.

Finally, the government is yet to define and initiate a genuine longer-term recovery plan, especially in failing to embrace the opportunity/imperative to transition to a low carbon society over the next few decades, or to reset our industrial/research/technology structures.

The challenge for Morrison is to recognise the precarious nature of his success to date - he needs to act to ensure that this success is sustainable, not pyrrhic.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.